What lies behind the Cypriot bail-out?

The results of last week’s meeting of eurozone finance ministers have further exposed the deepening cracks in the foundations of the European Union. The premeditated raid on Cypriot citizens’ bank deposits, perpetrated under the guise of solidarity, is nothing short of a brutal intervention with potentially catastrophic consequences.

The measures proposed on Saturday (16 March) would set a dangerous precedent and do nothing to relieve the already strained relations between all parties involved.

From the perspective of the International Monetary Fund and EU lenders, the €6 billion ‘haircut’ taken from Cypriot citizens’ deposits has been presented as a catalyst in the efforts to rescue the country’s financial system. But what about the billions that will flow out of Cyprus in the first minutes after the re-opening of local banks? Will this not destabilise the country’s financial system and, as a consequence, the eurozone? Will this not cause losses that will require even more ‘help’ from Europe?

It is telling that, a few hours after the deal’s details made the news, all parties involved rushed to shift the blame elsewhere. The ensuing turmoil in global markets is once again leading the euro headfirst into a climate of economic instability. Trust in the system is vanishing, with a core Western liberal value brushed aside: the inviolability of property and respect for private ownership. Furthermore, this decision directly violates European laws on safeguarding minimum deposits. If this is allowed, how many similar or even more shocking measures will follow for the next victims of the troika of international creditors?

These illegitimate, ill-conceived measures lead me to believe we are dealing with a hidden agenda, the first victims of which are Cypriot depositors. The next consequence in this dirty game will be the flight of capital from the island. The ultimate goal seems to be controlling the mineral wealth of Cyprus (which is of vital importance for the eurozone), throwing aside all the principles and rules of co-operation laid out in the EU thus far. The new rule seems to be ‘save the banks at any cost’.

In my opinion, Cyprus is being robbed twice over. Cyprus was already affected by the haircut on Greek bonds, which created a black hole in its economy. During those initial Eurogroup discussions – and despite the damage that such a decision would have caused its economy – Cyprus acted in line with the principles of solidarity; its leaders consented to the haircut on Greek bonds for the ‘good’ of the eurozone.

Apparently, that was a diplomatic trap that has led the Cypriot economy on a path similar to that taken by Greece. Is Cyprus being punished for showing solidarity to Greece? Is it paying the price for acting in good faith and in favour of a united Europe?

Whatever happens, it is clear that the Republic of Cyprus has a challenging task ahead: to defend and safeguard the interests of Cypriot citizens and those who chose to invest in the country while, at the same time, negotiating the best bail-out deal possible for its economic future.

Jorgo Chatzimarkakis is a German Free Democrat and a Liberal member of the European Parliament.